QSuper used to outsource its capital markets operations to QIC. “They did it very well. But it was a process that we wanted inside the organisation,” Holzberger says.
A capital markets function – to manage currency exposures, liquidity risk and execute asset allocation shifts – is seen as crucial to the new strategy. The team and its systems have been two years in the making. But after being tested by external consultants and internal compliance staff, and eight months of preparatory “front-loading” to test its mechanisms, the team began trading in early May. Its focus is to prove to the investment committee that it can perform well. “We’re still in the first stage of this,” says Herbert Chang, head of capital markets.
His team has the authority to trade equity and bond futures contracts, and over-the-counter future-forward currency contracts. It has executed large foreign exchange transactions and traded equity and bond derivatives. Alpha-seeking and unlisted investment strategies are off-limits. “We certainly don’t envisage running active equity portfolios,” Holzberger says.
The team will enable the fund to maintain control of cashflows, and its currency hedging and rebalancing policies independently of managers. It will also aim to improve risk management. Holzberger says funds invested with a range of managers can “lose control” of their cashflows, and liquidity and currency hedging programs in volatile markets.
“We see this as the natural growth of the fund,” he says. “If we’re not doing this at $30 billion, what are the chances of not doing it at $60 billion? Pretty high.”